Markets Trade Near the Dotted Line

Fri, 8 Apr 11:30 am

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After opening the day on a flattish note, the Indian Markets witnessed choppy trades ahead and continued to trade near the dotted line. Sectoral indices are trading on a mixed note with stocks from the capital goods and energy sectors leading the gains. Telecom and IT stocks are trading in the red.

The BSE Sensex is trading up by 44 points (up 0.2%) and the NSE Nifty is trading up by 19 points (up 0.2%). The BSE Mid Cap index and the BSE Small Cap index are also trading positively, both up by 0.5%. The rupee is trading at 66.61 to the US$.

While the Ujwal Discom Assurance Yojana (UDAY) scheme has got thumbs up from the power state utilities, the Reserve Bank of India (RBI) has a different stance on this matter.

As per an article in Economic Times, the RBI, in a report released on Thursday, stated that power reforms are likely to put pressure on state governments' budgets. The point made was that these schemes are potentially forcing state governments to cut spending needed to support economic growth.

The report stated that states could find themselves deviating from the path of fiscal consolidation as they take on an additional interest burden from debt tied to state utilities.

The UDAY scheme was brought up by the government to bring a turnaround in the State Electricity Boards (SEBs) that have been caught up in a vicious cycle of high debt and operational losses. The scheme allows power distribution companies (discoms) in select states to convert their debt into state bonds. Further, the part of debt not taken over the DISCOMs shall be converted by banks into bonds with a cap on the interest rates.

What the RBI has to say for this is that such a process would considerably reduce the fiscal space of states, which might lead to curtailment of capital expenditure with an adverse impact on growth.

One shall note that so far 15 out of 29 states have joined government's UDAY scheme. The drive behind joining the UDAY scheme is incentives like concessional coal, power and finance, which reduce their costs.

So, while the UDAY rescue package for discoms bodes well for the health of SEB's, it has reduced the stimuli for capital expenditure by the states of these SEBs. What these states need to focus instead is to cut unproductive expenditure and boost non-tax revenues to improve the quality of fiscal consolidation.

Having said that, we would like to see steps the RBI, government and states take in this sphere to be in sync with each other.

Engineering stocks are trading on a mixed note with Voltamp Transformers and Emco leading the gains. In another news update it was reported that Bharat Heavy Electricals Limited (BHEL) recently declared its FY16 provisional earnings. The earnings showed strong order inflows for the company at Rs 437 billion as against Rs 308 billion in the year ago period.

This comes as a good news. However, the company's management stated that while order book is definitely improving, execution has still not ramped up. It added that most orders are coming from the government rather than the private sector.

We will like to see the measures that the company takes in order to ramp up the execution cycle and attract orders from the private sector in the coming days.

BHEL is an engineering and manufacturing company. The company is an integrated power plant equipment manufacturer, engaged in the design, engineering, manufacture, construction, testing, commissioning and servicing of a range of products and services.

Rahul Shah has shared some of his views on the stock of company in yesterday's edition of The 5 Minute WrapUp titled 'The Time We Realised Even a Large Cap Like BHEL Can Be a Ticking Time Bomb'. Click here to read this interesting piece!

Presently the stock of BHEL is trading up by 1.3%.